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Zimbabwe new ZiG currency starts trading in attempt to tackle inflation

The new ZiG (Zimbabwe Gold) currency was launched as a way to help stabilise the economy [AFP]

By Amina Wako | 09 Apr 2024

The RTGS, introduced in 2019, struggled to gain trust and lost about 80 per cent of its value this year.

Zimbabwe's new gold-backed currency, Zimbabwe Gold (ZiG), began trading on Monday, replacing the Real Time Gross Settlement Dollar (RTGS) with an initial rate of 13.56 to $1.

The move aims to stabilise the economy and protect citizens from currency fluctuations and high inflation.

The RTGS, introduced in 2019, struggled to gain trust and lost about 80 per cent of its value this year, pushing annual inflation above 55 per cent in March. A composite basket of foreign currency and precious metals, primarily gold, held as reserves, backs the new currency.

"There was a dire need for a drastic change in the Zimbabwean monetary system," Jacques Nel, head of Africa Macro at Oxford Economics, told TRT Afrika.

"There is a lack of credibility in both the domestic currency and the framework that governs it, but it is that same lack of credibility that casts doubt over the effectiveness of these new measures."

Commercial banks started using the new official exchange rate on Monday, but it remains uncertain whether the currency will retain its value. Given that 80 per cent to 85 per cent of transactions currently take place in foreign currencies, companies and citizens are also reluctant to accept it as a form of payment and store of value.

Zimbabwe has a painful history with money, with hyperinflation in 2008 rendering the currency worthless. The country's economic woes, including central bank funding of the government, unsustainable fiscal deficits, debt arrears, and Western sanctions, need to be addressed for the currency to succeed.

"The Zimbabwe Gold is a chance for a solid and stable national currency," said the central bank.

Zimbabwe's new currency is a bold attempt to overhaul its monetary system, but its success depends on addressing the root causes of the country's economic problems. Only time will tell if Zimbabwe Gold will be able to stabilise the economy and gain the trust of citizens and companies.

"The Zimbabwean economy needs a comprehensive solution that addresses the fiscal deficits, debt arrears, and sanctions," said Hasnain Malik, Strategy & Head of Equity Research at Tellimer told TRT Afrika. "While the new currency represents progress, it is not a universal cure."